SABMiller closer to acquiring Foster’s

The world’s second biggest brewing company, SABMiller, has advanced in its quest to snare
Foster’s Group
, moving to secure acquisition loans to underpin a bid of at least $9.5 billion.

Escalating fears over European government debt – and what impact it will have on the region’s banks – contributed to a week of volatility on global sharemarkets, possibly triggering SABMiller’s move to quickly lock down funding.

A report from London on Friday indicated SABMiller was assembling a bank group for a multibillion-dollar syndicated loan to back a fresh bid for Foster’s.

The Foster’s board swiftly rejected SABMiller’s $4.90 cash offer on June 21, and failing a rival bid, market watchers expect SABMiller to return after Foster’s hands down its 2011 fiscal result on August 23.

The Foster’s result is expected to be unimpressive and is likely to be used by SABMiller to justify its current or slightly revised offer.

The Weekend Financial Review understands SABMiller, which has a BBB+ credit rating, may lift its bid price even in the absence of a rival offer to gain support from the Foster’s board and avoid a hostile takeover.

But the market ructions, which saw Foster’s Group shares trade as low as $4.51 on Tuesday, are being viewed by many in the market as a development likely to relieve pressure on SABMiller to lift its offer substantially. Foster’s shares closed down 3¢ to $4.91 on Friday.

In June, analysts expected a bid of about $5.50 would be successful. A number of Foster’s shareholders spoken to by this newspaper said it was now unlikely SABMiller would raise its offer substantially. One fund manager said a bid between $5 and $5.15 a share was more likely.

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The recent turmoil in equity and credit markets has had a mixed impact on corporate borrowing costs. While it may face higher financing costs, yields on SABMiller’s five-year US dollar bonds have actually fallen. Global bond yields have fallen to 2.15 per cent from 2.5 per cent in late June, when the bid was lobbed.

SABMiller’s credit margins on those bonds have remained steady at around 110 basis points over the US government bond rate.

SABMiller’s 10-year debt, meanwhile, has fallen to 3 per cent from 3.47 per cent as the 10-year Treasury rate has fallen.

Banking sources said SABMiller would have little trouble securing debt. Fitch Ratings has said SABMiller could afford to lift its bid by 10 per cent – or by a further $1 billion – and still maintain its current credit rating.

The syndicate of lenders will join SABMiller advisers JPMorgan, Royal Bank of Scotland and Morgan Stanley on the debt package.

Banking sources told the Australian Financial Review that SABMiller has been confidentially sounding out financiers for about six months.

The acquisition loan may exceed the size of the current bid, to allow SABMiller to table a better offer. BHP Billiton’s $US45 billion facility was larger than its initial, and ultimately unsuccessful bid for Potash Corp to allow for an increase in the bid.

Acquisition activity is picking up elsewhere in the beverages sector. California’s The Wine Group agreed to buy
Australian Vintage
’s Loxton winery, for $27 million. Australian Vintage shares surged 6 per cent, or 1.5¢, to 22.5¢.